Tomkins, International Power add to M&A surge

Tomkins and International Power became the latest British companies to receive takeover approaches from foreign suitors yesterday, amid signs that an international mergers and acquisitions (M&A) boom has begun to grip the London stock market.

The offers, both at an advanced stage, are the latest in a growing line of deals involving UK companies. Overseas buyers have become increasingly attracted to the Footsie after a prolonged period of weakness in the pound and a feeble recovery in corporate valuations following last year's recession.

"There was certainly an uptick in M&A deals in the first half the year, admittedly from a pretty low base," said Paul Zimmerman, of Deloitte's corporate finance team. "The weakness of sterling has certainly helped, but companies have also generally done better than most expected during the downturn. Earnings have been impressive and that has attracted attention." Others argued that some of the UK's best-known companies were being lined up by their overseas peers. Last month, analysts at S&P said that the drugs company AstraZeneca and the defence giant BAE Systems were at the top of their US rivals' shopping lists, citing sterling's 25 per cent drop against the dollar in the past year.

The analysis followed Kraft's £11.5bn takeover of Cadbury in January. AstraZeneca and BAE declined to comment.

Tomkins is in advanced talks with a Canadian consortium which has launched a $2.9bn tilt at the FTSE-250 engineering company, based in Putney, South-west London. Founded 75 years ago, it makes a wide range of parts for the industrial and automotive markets, as well as bathtubs and whirlpool baths, doors and windows and other building components. Tomkins, which counts the US as its biggest market, said it had opened its books to the buyout firm Onex and the Canada Pension Plan Investments Board following the 325p-a-share offer. Its shares soared at the news, closing last night at 294.2p, 27.8 per cent higher than Friday's close.

Tomkins made no comment beyond its announcement, but it is understood that the Onex offer has not yet prompted a rival bid. "It clearly would not be too much of a stretch for industrial or other financial buyers to bid higher than 325p," said Mark Wilson, an analyst at Charles Stanley.

"The biggest factor likely to get in the way of that is time; given Tomkins statement that due diligence is already at 'an advanced stage.'"

Last month, Scott Wilson Group, a mid-tier engineer, toasted a 290p-a-share offer from its US peer URS – representing a 233 per cent premium to the group's value before it disclosed takeover talks were taking place – the second-highest premium paid for a UK company in the past 10 years. The final price was ratcheted up several times after URS fought off a rival bid. At the same time, Chloride, a FTSE-250 listed power company, said that it would accept a £997m offer from its American rival Emerson Electric. Speculation about a deal, and other bids, helped to double the value of Chloride in just six months.

Tomkins' announcement was followed by International Power, the power utility, which said its on-off talks with France's GDF Suez had started again. The talks could result in GDF taking a majority stake in the firm, transferring some of its non-European assets to the British group.

Rumours of a deal surfaced in January, but broke down after shareholders said they were not being adequately compensated. GDF is now thought to be preparing a cash sweetener.

Neil Woodford, head of investments at Invesco Perpetual, which owns 11 per cent of International Power, yesterday welcomed the renewed talks, saying the deal made, "a lot of sense," and adding that, "we are keen on the combination". Shares in the FTSE 100-listed company jumped by 10.5 per cent, to 350p.

The increased pace of the M&A market has led to a leap in fees for the banks. According to data from Thomson Reuters last month, Goldman Sachs earned almost $1bn (£650m) in M&A fees in the first half of the year.